DOL Issues Final Rule on $10.10/Hour Contractor Minimum Wage

On October 7, 2014, the Department of Labor (“DOL”) published final regulations setting a minimum wage of $10.10 per hour under certain federal contracts and subcontracts. The regulations were issued under Executive Order 13658, issued by President Obama on February 12, 2014. The new minimum wage will take effect on January 1, 2015.

Which contracts are covered by the higher minimum wage?

The $10.10/hour minimum wage will be applicable to new contracts for construction covered by the Davis-Bacon Act (“DBA”); contracts for services covered by the Service Contract Act (“SCA”); contracts for concessions; and contracts entered into with the Federal Government in connection with federal properly or lands and related to offering services for Federal employees, their dependents, or the general public.

What is a “new” contract that will be covered by higher minimum Wage?

The $10.10/hour minimum wage will apply as of January 15, 2015 to “new” contracts. The final regulations define “new contract” as follows:

New contract means a contract that results from a solicitation issued on or after January 1, 2015, or a contract that is awarded outside the solicitation process on or after January 1, 2015. This term includes both new contracts and replacements for expiring contracts. A contract that is entered into prior to January 1, 2015 will constitute a new contract if, through bilateral negotiation, on or after January 1, 2015:

(1) The contract is renewed;

(2) The contract is extended, unless the extension is made pursuant to a term in the contract as of December 31, 2014 providing for a short-term limited extension; or

(3) The contract is amended pursuant to a modification that is outside the scope of the contract.

Which workers are covered by the $10.10 minimum wage?

In the final regulations, DOL provided two distinct subsets of workers that are covered by the higher minimum wage.

Workers performing “on a government contract”

The $10.10 minimum wage will apply to all workers performing “on” a covered contract. In the Preamble to the final regulations, DOL states that it views workers performing on a covered contract as

those workers directly performing the specific services called for by the contract. Whether a worker is performing ‘‘on’’ a covered contract will be determined in part by the scope of work or a similar statement set forth in the covered contract that identifies the work (e.g., the services or construction) to be performed under the contract. Specifically, consistent with the SCA, see, e.g., 29 CFR 4.153, a worker will be considered to be performing ‘‘on’’ a covered contract if he or she is directly engaged in the performance of specified contract services or construction.

Under the final regulations, those workers who are covered by the prevailing wage requirements of the SCA are covered by the new $10.10 minimum wage and will be entitled to that higher minimum wage for all hours worked on a covered contract, regardless of how few those hours are in relation to total hours worked.

Workers performing “in connection with a government contract”

The proposed regulations made no distinction between workers performing on a government contract and those performing in connection with a government contract; both groups were covered to the same extent. The final regulations distinguish between the two classes of workers.

DOL has defined a worker performing “in connection with a government contract” as any worker who is performing work activities that are necessary to the performance of a covered contract but who are not directly engaged in performing the specific services called for by the contract itself.

According to DOL, these workers are not entitled to DBA or SCA prevailing wages, but, because they are covered by the FLSA, they are covered by the terms of Executive Order.

Under the final regulations, a worker performing in connection with a covered government contract is not covered by the $10.10 minimum wage if that worker spends less than 20 percent of his or her hours in a particular workweek performing in connection with such contract.

Annual adjustment to the minimum wage

Beginning January 1, 2016, and annually thereafter, the Secretary of Labor will determine by how much the $10.10 minimum wage will be increased, based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers. DOL must publish the annual minimum wage rate at least 90 days before the new wage rate takes effect.

Special provisions for tipped employees

The new minimum wage applies to employee engaged in an occupation in which he or she customarily and regularly receives more than $30 a month in tips. Currently, employers must pay tipped employees minimum cash wage of $2.13 per hour toward satisfaction of federal minimum wage of $7.25 per hour. For contractors covered by the new regulations, however, employers must pay a cash wage of at least $4.90 per hour towards satisfaction of the $10.10 minimum wage. That amount will be adjusted annually, until the hourly cash wage equals 70 percent of the minimum wage applicable at that time to non-tipped employees.

Enforcement

The regulations provide for investigations by the Wage and Hour Division of DOL, with enforcement through administrative proceedings. Remedies include the retroactive inclusion of the minimum wage clause in covered contracts, the payment of back wages, withholding of contract payments and debarment.